Risk Management Graduation Model for Microfinance Institutions (MFIs)

The Risk Management Graduation Model (RMGM) is a comprehensive, pathways-based, best practice framework for risk management tailored to the microfinance sector. The RMGM concept came from the idea that the types of risks, level of risk, and ability to mitigate these risks change through the different stages of institutional development and the increasing complexity of business processes. The RMGM allows microfinance institutions (MFIs) to proactively prioritize and develop their risk management capabilities in order to keep them ahead of their ever-evolving business practices, increasing institutional size, and growing complexity.

The RMGM framework is intended to be dynamic in nature, adapting over time according to changes in the microfinance industry. It seeks to provide a view toward commonly accepted risk terminology, policies, and limits, as well as risk management and monitoring tools.

The basic components of the RMGM are the following:

1. The Definition of Risk in Microfinance: an identification of risk within a double-bottom-line microfinance industry;
2. The Risk Management House: a useful model illustrating a formal risk management system as defined by three key elements:
   • The Organizational Foundation: the institutional base upon which formal risk management is built;
   • The Floor and Risk Management Pillars: the main risk categories that an MFI may face over its life cycle;
   • The Roof: the financial and social goals of an MFI.
3. RMGM Graduation Path: a scalable path for institutional development for each risk management guideline in the RMGM, based on the MFI’s level of development as identified by its institutional tier category.